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Strategies & Market Trends : John Pitera's Market Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: Hawkmoon who wrote (7590)	3/5/2007 12:24:54 AM
From: John Pitera	Read Replies (1) \| Respond to of 33421

I have put the below paragraph in bold. As I have always said you can look at the currencies and see how shifts in the global flow of funds always begin there. The huge run rate thursday morning with the emphasis on foreign activity showed up in a phenomenal amount of currency transactions going on. The peak time was the half hour before the ISM. There is a huge present unwinding of the carry trade and other global macro manager asset allocation shifts occurring. Those trying to understand US market act in light of just US catalysts are doomed to extinction since global force move asset markets. Anyone who is talking about internal US market only concepts is like the average 7th grader talking about calculus. As you know it's just hard enough to keep track of Global currency cross rate movements and interest rate differentials that it catches many investment professionals off guard. The melt down in carry trade currency crosses such as the GBP/CHF where it move from 239.50 to 234.26 since friday morning! and The AUD/JPY has moved from 95.75 to 89.75 in 5 days is breakthing is indicating huge unwinding in risk positions occurring. This will translate into a very negative bearish day for riskier assets. US stocks should be much lower as well as other equities and poorer quality debt. US treasuries should continue to get a bid from a flight to safety. This is occurring in other Global government debt issues of higher quality. We have seen big hits in carry trade currencies periodically over the past several years. What is different this time is that Japan has ended the ZIRP (Zero interest rate policy) rates in Japan have started to rise, the BOJ is talking about an additional rise in rates over the next few months. Simultanesously the economies of Britain, Australian appear to be slowing down and interest rates could start to be pruned back by the central banks. So you have the interest rate differentials coming closer together. The other very liquid holder of US Dollars China is pressured into having there currency appreciate and to have the Chinese RMB and the YEN both set on a Macro course of appreciation meanings selling carry trade currencies including the USD, the GBP and the EUR you would think is at the top in terms of the EUR/JPY cross or pair rate. One can make a pretty interesting case that there may not be enough liquid global assets to be sold when macro global carry yield investments are reduced. It is evidently the reduction of leverage in the global financial system and this should lead to a global credit crisis, This 100 year anniversary of the financial panic of 1907 will lead for some calls for a more powerful global central bank, while at the same time will increase protectionist type sentiments Hillary Clinton has been advocating over the past few days. ..........John ---------------------------------- ART Cashin's daily missive from Friday 03-02-07 Traders continued to wonder if the bull market train had merely stalled or if the five year gravy train was about to derail. Mr. Toads Wild Ride – About 90 minutes before the opening Thursday, U.S. stock futures began to head south and within minutes, they were plunging. We noted on the squawkbox in the pre-opening call, the action suggested, perhaps, that the rumormongers might be out and about hinting that this hedge fund or that hedge fund was “trapped” in some market. Whatever the motivation, within minutes after the stock market opened, the Dow was down over 200 points. That took out the Tuesday lows in the three key indices. The opening plunge had a heavy foreign accent. The run rate was so heavy in the first half hour that it would have produced a final volume of 3.4 billion shares. At 10:00, the ISM hit and was much better than expected. While the selling had not been data driven, the bulls seized upon the good numbers to counterattack. The presumed opening flush of foreign selling may have left a vacuum. The bulls rushed into that vacuum. Stocks began to rally, and rally sharply. Cashin’s Comments March 2, 2007 Page 2 of 3 ab About twenty minutes before the turn, Erin Burnett and Mark Haines had asked me if the Dow was likely to wallow in the -180/-200 area it was in during the interview. I suggested the day would likely be marked, instead, by whipsaw turns throughout the day as the market tested itself. After 45 years, you learn a thing or two. The Dow closed down only 34 but was still nervous and unsettled. X Marks The Spot – I had hoped this morning to discuss the long-term chart constructed eight or nine years ago by the man I had dubbed Mr. X. Due to time constraints (Thursday’s volatility) and the late arrival of the actual chart, a full and thorough analysis may wait on next week. I was surprised at how many folks contacted us to say they knew the name of “Mr. X”. The folks who guessed right ranged from Wall Street icons like Ron Insana and Peter Eliades to lesser known but also clever students of the market. The identity of “Mr. X” is Martin Armstrong who ran money in the 90’s, often reporting stunning results. Then he ran afoul of some bad luck and the law. I believe he is still incarcerated. At any rate in 1997, he published a copyrighted chart based on a cycle. It covers the years 1985 through 2011. The chart shows various buy/sell points, some rather amazing. It looks like there’s a sell in August of 1987 and a buy in November of 2002. If only those calls were correct, it would be a pretty nifty chart. But there are many signals in the chart I would like to take a couple of days to better analyze and test its historical accuracy. Hopefully, we’ll report back in the middle of next week. Overnight – China was relatively stable but Tokyo got clocked as the yen rose mightily, suggesting more unwinding of the massive “carry trade”. Were the yen to rally significantly more, it could trigger a squeeze among “carry” players. We hope the banking authorities avert that since the results might be global chaos. Consensus – Presume that whipsaw testing continues as global markets try to test themselves after the “heart attack”. Beware of oil. A spike could produce a negative trigger.